Our leadership team struggles to understand the mental model of leading versus lagging indicators, often submitting lagging financials because they feel safer tracking them. How do we teach our team the fundamental difference so they can identify true leading activities on their own?

Question

Tyler Smith · Accepted Answer

The easiest way to teach your team the difference between leading and lagging indicators is to use the mirror test. A lagging indicator is like looking in the rearview mirror. It tells you where you have been, but it cannot stop you from hitting a wall in front of you. Closed revenue, completed billable hours, and net profit are all lagging. By the time you see them, the activity that caused them happened weeks or months ago. You cannot change them.

A leading indicator is looking through the windshield. It measures the physical activities that must happen today to produce the financial results you want tomorrow. For example, closed revenue is lagging, but outbound sales calls, scheduled introductory meetings, and sent proposals are leading. If your sales team does not make the calls this week, your revenue will drop next month.

To shift your team's mindset, audit every number on your current Scorecard. Ask your team if they can directly control this number within the next seven days. If they cannot control it, it is a lagging indicator.

Keep a couple of lagging indicators to verify your results, but make sure at least eighty percent of your weekly Scorecard consists of active, leading indicators. This shifts your team from reactive damage control to proactive management.